Bids could best Michael Dell and Silver Lake, keep company public.

There has been another twist in the story of Dell CEO Michael Dell's quest to take the company he founded private. Already facing a backlash from Dell's biggest stockholders over the terms of the bid that he and private equity firm Silver Lake have made for the company, there are now two rival bids to contend with. The first comes from a group led by infamous corporate raider Carl Icahn with another led by asset management company Blackstone Group. And both, at least on the surface, appear to be better deals for Dell shareholders—-especially those who want to bet long on the company and keep their stake.

In a press release issued this morning, the "special committee" formed by Dell Inc.'s board to handle negotiations for the company's sale acknowledged the offers from the Blackstone and Icahn groups. "Both proposals could reasonably be expected to result in superior proposals" to the Michael Dell/Silver Lake offer, the committee said in its written statement on the offers. The committee will now enter into further negotiations with both to hash out the details of each offer and weigh them against the plan to go private.

Both the Blackstone Group's offer and that of Ichan's group aim to keep Dell public while offering shareholders who wish to cash out the opportunity to get a bigger payday than under the Dell/Silver Lake plan. The Blackstone group is offering "greater than $14.25 in cash per share" for those stockholders who take the deal, while those who wish to stay investors in the company would be able to swap their shares for ones in the "merged" company, subject to a capped number of shares, valued at the same amount as the cash payout. The Icahn offer would pay out $15 per share or a one-for-one stock swap and pay the "breakup" fee for terminating the offer from Michael Dell and Silver Lake. The Dell/Silver Lake offer proposed paying shareholders $13.65 per share.

The proposals would raid Dell's existing cash hoard and load new debt onto the company. The Blackstone offer did not specify how the group would finance the deal, only saying that the group was working with Morgan Stanley to secure the required loans to close the deal. Icahn's group would put up a total of $5 billion in cash and equity in Dell as part of the deal, spend $7.4 billion of Dell's cash-on-hand, collect $1.7 billion by financing against Dell's outstanding accounts receivable, and add $5.2 billion in new debt to the company's ledgers.

Both the Blackstone Group and Icahn are counting on the backing of Dell's largest shareholders, since the structure of the deals counts in part on some of them keeping their stakes in Dell. The Blackstone offer puts a cap on how many shares can be cashed out, while Icahn's excludes the major shareholders completely from the buyout and instead gives them an equivalent share-for-share stake in the "surviving" company. Blackstone's offer also gives an olive branch to Michael Dell's group, offering to include them in the deal. "We would also expect to encourage (but would not require) the MD Investors (as defined in the Merger Agreement) to participate in our transaction by rolling over equity held by the MD Investors," the group said in its proposal.

While these deals may offer better options to Dell's stockholders and employees up front, it's not clear what they mean to the future of the company. If either the Blackstone or Ichan deal prevails, Michael Dell would lose control of the company—and likely lose or leave his job as CEO. And the company's strategy to become an enterprise-focused IT company and exit the consumer PC business could also be tossed aside.

Sean Gallagher
Sean is Ars Technica's IT and National Security Editor. A former Navy officer, systems administrator, and network systems integrator with 20 years of IT journalism experience, he lives and works in Baltimore, Maryland. Emailsean.gallagher@arstechnica.com//Twitter@thepacketrat

So essentially the plan is to rape the company by emptying it's bank to pay for its own hostile take over, dump another 5 billion onto it's debt pile to refill the buyer's pockets with loan money signed in dell's name, then file chapter 11 and walk away like an action hero who is too badass to look back at the exploding car?

To me, this perfectly illustrates why Michael Dell wants to take the company private. Years ago while working toward an accounting degree, the one thing that was mentioned over and over is that the share holders' interests always come first. I always thought at the time that was BS. Without employees and customers you aren't going to have any share holders. But what do I know, I'm just a geek. :-)

So essentially the plan is to rape the company by emptying it's bank to pay for its own hostile take over, dump another 5 billion onto it's debt pile to refill the buyer's pockets with loan money signed in dell's name, then file chapter 11 and walk away like an action hero who is too badass to look back at the exploding car?

Capitalism wins again.

The "we're going to buy your company with your own money" takeover gambit is one of the insanely wonderful things about American capitalism... and when it happens there's pretty much no other resolution than bankruptcy and/or selling off the parts for a quick profit. The "investors" win, the company (and its employees, shareholders, suppliers... basically everyone else) loses.

To me, this perfectly illustrates why Michael Dell wants to take the company private. Years ago while working toward an accounting degree, the one thing that was mentioned over and over is that the share holders' interests always come first.

You're just assuming Michael Dell is a patron saint of capitalism here. It's just as likely that his bid is designed to give him full control of the company so HE can be the one who strips it down to a corpse and massively enriches himself (and his few chosen benefactors), without those pesky share-holders able to take him to court for doing so.

The proposals would raid Dell's existing cash hoard and load new debt onto the company.

Of course they would. Because to hell with long-term sustainability, the most important thing is to make as much as much money as quickly as possible and to hell with the consequences of such a short sighted and brain dead scheme.

God I hate investment groups. I sincerely hope Dell can go private despite these competing offers. It's clearly the best route for the company to take to stay afloat.

So essentially the plan is to rape the company by emptying it's bank to pay for its own hostile take over, dump another 5 billion onto it's debt pile to refill the buyer's pockets with loan money signed in dell's name, then file chapter 11 and walk away like an action hero who is too badass to look back at the exploding car?

Capitalism wins again.

The "we're going to buy your company with your own money" takeover gambit is one of the insanely wonderful things about American capitalism... and when it happens there's pretty much no other resolution than bankruptcy and/or selling off the parts for a quick profit. The "investors" win, the company (and its employees, shareholders, suppliers... basically everyone else) loses.

Don't forget that the loan money will probably come from the feds instead of whatever bank's own pocket, at an interest rate so low it can be wiped away with the late fees collected from dell's soon to be unemployed while the government is shit out of another 5b ... American tax mone used to it's fullest!

To me, this perfectly illustrates why Michael Dell wants to take the company private. Years ago while working toward an accounting degree, the one thing that was mentioned over and over is that the share holders' interests always come first.

You're just assuming Michael Dell is a patron saint of capitalism here. It's just as likely that his bid is designed to give him full control of the company so HE can be the one who strips it down to a corpse and massively enriches himself (and his few chosen benefactors), without those pesky share-holders able to take him to court for doing so.

If that would be the case, he could have done that a long time ago, during his entire tenure as CEO, or even during the time when owned the biggest chunk of Dell shares. Furthermore, founders are generally irrationally infatuated with their creations. Corporate raiders, of which Icahn is the poster child, on the other hand only exist to extract as much money from a corporation as quickly as possible. And the easiest way to do that is to put it through a financial press, with money flowing into the raider's pockets and the lifeless corpse being tossed away.

To me, this perfectly illustrates why Michael Dell wants to take the company private. Years ago while working toward an accounting degree, the one thing that was mentioned over and over is that the share holders' interests always come first.

You're just assuming Michael Dell is a patron saint of capitalism here. It's just as likely that his bid is designed to give him full control of the company so HE can be the one who strips it down to a corpse and massively enriches himself (and his few chosen benefactors), without those pesky share-holders able to take him to court for doing so.

Well I don't know about patron saint but yeah, you're right, I'm assuming that he cares just a bit more about the company he started then people who tend to be mostly interested in short term returns. It seems you assume the opposite I guess? My issue is with the knee jerk reactions markets make to even trivial business decisions and I assume Michael Dell is feeling the same way. And yes that is a further assumption of mine. I'm also quite aware of Carl Icahn's history, to some he's a benefactor but I've never seen him in that light. I wouldn't trust that man with a dollar of my own money.

One thing is for certain about all this, there are going to be some pretty interesting financial stories for a bit. :-)

And at the Gartner Symposium and ITxpo97 here today, the CEO of competitor Dell Computer added his voice to the chorus when asked what could be done to fix the Mac maker. His solution was a drastic one.

"What would I do? I'd shut it down and give the money back to the shareholders," Michael Dell said before a crowd of several thousand IT executives.

Looks like Mr. Dell may not even have his own company to liquidate and return the money to the shareholders. Looks like others may do the liquidating for him, how ironic. Karma is a bitch, baby...

No matter what happens, Dell as a company loses. They're already not doing so great and this just feels like vultures fighting to pick apart what's left before it completely falls apart.

Pro tip: if investors can make a quick buck by raiding a company right away, they're not going to be interested in its long-term survival - especially if that survival is already questionable at best.

Why should they? Obviously other companies are doing something better than Dell right now, so why wouldn't investors want to move onto those companies that are growing much faster?

If I am a Dell stockholder and my stock is currently being priced at 13$ a share why wouldn't I want to take that 2$ premium being offered by the raiders? Let them take on all the risk of either liquidating the company or turning it around.

These people trying to buy it by adding on debt to the company just means current shareholders make out and the current buyers add more risk. If they can't pay off the debt then their shares in the company won't be worth very much now would they?

Um... I get $5B in loans to buy a company so I can take the $7B in cash they have and stuff it in my pocket, then leave them to pay-off the very debt I got into before I ran-off with all their money?

Yep. Why do you think it's such a popular way to buy a company? Icahn is part of a group of people who built fortunes by doing nothing else. They don't even pretend to add value, they just raid.

And why do you think that these same "activist investors" (nice rebranding there) are bitching about Apple and its $100+ billions in cash? They're all looking at that stash of cash and wondering how to get a hold of it. Fortunately, no one can put together a bid big enough to buy all of Apple, otherwise, someone would have already done so and made off with the cash.

So essentially the plan is to rape the company by emptying it's bank to pay for its own hostile take over, dump another 5 billion onto it's debt pile to refill the buyer's pockets with loan money signed in dell's name, then file chapter 11 and walk away like an action hero who is too badass to look back at the exploding car?

So essentially the plan is to rape the company by emptying it's bank to pay for its own hostile take over, dump another 5 billion onto it's debt pile to refill the buyer's pockets with loan money signed in dell's name, then file chapter 11 and walk away like an action hero who is too badass to look back at the exploding car?

Capitalism wins again.

Mitt Romney is that you??

Gah! You beat me to it. Here's a link to reference the Mittens reference:

"Once all that debt is added, one of two things can happen. The company can fire workers and slash benefits to pay off all its new obligations to Goldman Sachs and Bain, leaving it ripe to be resold by Bain at a huge profit. Or it can go bankrupt – this happens after about seven percent of all private equity buyouts – leaving behind one or more shuttered factory towns. Either way, Bain wins. By power-sucking cash value from even the most rapidly dying firms, private equity raiders like Bain almost always get their cash out before a target goes belly up."

I think Dell is still a viable company for the long-term, in that respect the better option for employees and long-term investors is the Silver Lake/Dell deal. Blackstone and Ichan will suck the company dry then throw out the remining husk. I see this tied to the question of what the ultimate goal of corporations is, pure profit generation or making society better. Many renowned businessmen advocate for the former. I however believe that a private Dell would be better given the alternative of a few very rich people getting richer and a slew of unemployed Dell people. The deal Michael Dell is proposing is going to net him a boatload of money, but I think in the end he will be a better caretaker of the company than the other options being presented. Unfortunately, I see greed winning over in the end.

I happen to work for Dell and I'll say upfront that whatever I say here does not represent any views of Dell, they are entirely my own views.

The first thing I want to react to is Ars Technica's coverage of Dell's plan for handling the Long Term Incentives (Restricted Stock, stock options, etc.). Ars Technica implies that Dell employees were unhappy about the plan. Personally, I believe it's a reasonable plan and while it would have been nice for them to accelerate vesting and just give us all bags of cash if/when the buyout occurred, I wasn't expecting them to. I also wasn't expecting Dell's stock price to go up much in the next few years (if the company continued on the same course without the buyout sideshow), so I wasn't expecting much more than what they would be paying.

That leads me into the "offers" proposed by Blackstone and Icahn. While both of them would mean that any stock that they buy back from us (assuming the policy for dealing with LTI would be the same in these scenarios) would provide marginally more money than we would get with the Michael Dell/Silver Lake, I don't think it's worth it at all and I would seriously be concerned about my future employment. Not so much that I would be worried about losing my job (I happen to work on a very profitable product) but that I just wouldn't want to work for what's left of Dell after they finish.

As other commenters have already stated, this is exactly why Michael Dell wants to re-privatize Dell. Being a public company often forces short-sighted decisions to make shareholders temporarily happy and hurt the company and its employees in the long run.

Regardless of what happens, I can't wait until some decision is made on this.

The basic idea is finance 101. Debt is tax preferred. So you take out the cash as a capital gain, and replace it with debt. The debt payments come out of future earnings.

So you get a 35% tax shelter from the debt, you get to take money out as capital gains instead of dividend, and you get the time value money of cashing out now (the difference between what you will make on the cash and what the loan interest is costing you). I also read there's a loophole that helps bring overseas cash back home (although I'm not sure that's correct) without getting the 35% hit.

This isn't changing the company so much as just changing its capital structure.

So essentially the plan is to rape the company by emptying it's bank to pay for its own hostile take over, dump another 5 billion onto it's debt pile to refill the buyer's pockets with loan money signed in dell's name, then file chapter 11 and walk away like an action hero who is too badass to look back at the exploding car?

Capitalism wins again.

Mitt Romney is that you??

Gah! You beat me to it. Here's a link to reference the Mittens reference:

"Once all that debt is added, one of two things can happen. The company can fire workers and slash benefits to pay off all its new obligations to Goldman Sachs and Bain, leaving it ripe to be resold by Bain at a huge profit. Or it can go bankrupt – this happens after about seven percent of all private equity buyouts – leaving behind one or more shuttered factory towns. Either way, Bain wins. By power-sucking cash value from even the most rapidly dying firms, private equity raiders like Bain almost always get their cash out before a target goes belly up."

Such a great article...

Did you mean to say here is a link to the Rolling Stone article on Mitt Romney and Bain Capital? Your quote is a quote from the Rolling Stone article, nothing more. You are right it is a great article. It shows how one can legally use "the bust out" to make a stack of cash.

If I am a Dell stockholder and my stock is currently being priced at 13$ a share why wouldn't I want to take that 2$ premium being offered by the raiders? Let them take on all the risk of either liquidating the company or turning it around.

These people trying to buy it by adding on debt to the company just means current shareholders make out and the current buyers add more risk. If they can't pay off the debt then their shares in the company won't be worth very much now would they?

The current buyers will have NO MORE RISK. Like you said, they're just going to load the debt onto the company. Then they're likely going to liquidate it further.

I'm assuming that he cares just a bit more about the company he started then people who tend to be mostly interested in short term returns. It seems you assume the opposite I guess? My issue is with the knee jerk reactions markets make to even trivial business decisions and I assume Michael Dell is feeling the same way. And yes that is a further assumption of mine.

I was just offering the counter argument, because I'm not willing to assume Michael Dell's motives are completely magnanimous. You find extremely little of that in the world of mega corporations. Megalomania does happen, but money usually triumphs ego. You mentioned Steve Jobs, but he was only too happy to sell off Pixar to Disney when the price was right.

Also, I should point out that going private isn't the only option if you want better long-term stability and to get away from stock holders insisting on short-term profits. Another option is to switch to dividend-paying stocks, which are held for much longer periods of time, and studies have reported companies that pay dividends to be more stable, long-term.

I was just offering the counter argument, because I'm not willing to assume Michael Dell's motives are completely magnanimous. You find extremely little of that in the world of mega corporations. Megalomania does happen, but money usually triumphs ego. You mentioned Steve Jobs, but he was only too happy to sell off Pixar to Disney when the price was right.

I think you'll find that worked out pretty well for Pixar. Disney already had rights to all of their prior works (e.g. Toy Story 2) and they needed a distributor for their upcoming movies. It would've been an unmitigated disaster for Pixar if they hadn't worked out a deal with Disney. There's a lot of valid criticism of Jobs but what he did for Pixar is not one of them.

It would've been an unmitigated disaster for Pixar if they hadn't worked out a deal with Disney.

Pixar already had a deal with Disney. They decided not to renew it, insisting on ridiculously one-sided terms, playing a game of brinksmanship, trying to get Disney to make an offer. This worked because Disney needed Pixar much more than Pixar needed Disney. If it didn't work, both Pixar and Disney would have been hurt, but both companies would have continued just fine. There are a large number of distributors, and only one Pixar. Unique content trumps distribution channels any day. Disney even entered a contract to be a distributor for at least one of Pixar's movies, before they made the deal to purchase them.

If I am a Dell stockholder and my stock is currently being priced at 13$ a share why wouldn't I want to take that 2$ premium being offered by the raiders? Let them take on all the risk of either liquidating the company or turning it around.

because, to quote the Grapes of Wrath, "You're helping to starve kids.". This is not a '0 sum game'. Carl Icahn has a history of managing to 'socialize' his losses. A perfect example is Kerr-McGee / Tronox - he helped spin off the environmental debts of a chemical conglomerate to a little side company, pocketed millions, and let the side company go bankrupt. Now the taxpayers have to pay for all of the cleanup of all of those chemical dumps, radioactive sites, poisoned groundwater, etc etc etc. If that's is what you think is important in life, to make a few thousand bucks by shaking hands with the devil while the rest of society can be left with the debt, then good on you, but don't expect anyone to give you a standing ovation. This ain't Wall Street and you ain't Michael Douglas.

The proposal should read. I want to buy your company with your money. Crazy.

And then liquidate it draining it for all it's value and leaving employees without a job. This is just another typical corporate raider slash and burn for instant profit raid. Bain Capital is great at these as well, all corporate raiders need to go bye bye. They add nothing to the value of a company and it's employees, they leave behind a smoking ruin of nothing.

Given that Michael Dell's proposal basically screwed everyone else to enable him to do what he wanted (and noting that he has already screwed Dell employees with a share buy-back at a discount price), I don't quite understand why people are so concerned about the two new "plans". They're not Michael Dell buying back the company he founded, but nor are they screwing current shareholders.

For all those people saying "you can't trust these corporate raiders", are you saying Mr Dell is someone you trust instead? I certainly don't see any reason to, when he isn't prepared to pay shareholders what their shares are worth.

"Once all that debt is added, one of two things can happen. The company can fire workers and slash benefits to pay off all its new obligations to Goldman Sachs and Bain, leaving it ripe to be resold by Bain at a huge profit. Or it can go bankrupt – this happens after about seven percent of all private equity buyouts – leaving behind one or more shuttered factory towns. Either way, Bain wins. By power-sucking cash value from even the most rapidly dying firms, private equity raiders like Bain almost always get their cash out before a target goes belly up."

No matter what happens, Dell as a company loses. They're already not doing so great and this just feels like vultures fighting to pick apart what's left before it completely falls apart.

Pro tip: if investors can make a quick buck by raiding a company right away, they're not going to be interested in its long-term survival - especially if that survival is already questionable at best.

For the investors already in it ... yes. They want to cash out their chips instead of riding through another low period that may last a long time and/or end in failure.

However, there are investors like me that look at companies like this as potential prospects. We wait for a huge plunge, like what may happen here, then buy in on the down-swing (low) in the hopes it gets reorg'ed properly and makes a come back. Penny stocks have made people rich. While Dell isn't exactly penny stock material, it is in the same league as Blackberry and AMD right now.

All of them are hitting a low point.

You can see this from a negative angle ... they suck, bad reputation, etc. But, you can also see it from a positive angle. They have a huge potential to get better. With a decent change in management, any positive change they make will have a huge impact on their reputation. Also, since they're hurting, other companies will see them as the go-to folks to make deals with. That's what Sony did with AMD for PS4, and also MS is rumored to have done it for Xbox 720. Dell is hurting, but that could mean it could finally get off its high horse and make some really sweet deals its ego wasn't allowing in the past.

But, it is still a gamble. It's not like tossing money into Google hoping it goes up a few cents in a day and selling it off. Folks would have to buy in (when it tanks) and wait for it to slowly build back up. Some folks did that with Apple, and they're laughing all the way to the bank now. It's really a matter of seeing

a) who takes over ... b/c the investment group has a lot to do with where a company will head. Will they just treat it like a horse to beat to death before parting out, or do they really have an intention to build it up into a viable business with long-term investment & industry respect?

b) who they put in charge? The exec team, as we all know, can make or break a company. Been seeing a lot of breaking going on these days, though.

c) Can they get employee buy-in? If the employees just think it's another "ra ra!" cheerleader session w/o any real change happening to cause improvement, they won't stand behind it. If you can't get the troops behind the war, you have already lost.

d) Can they really innovate? It's great to want to come back from teh ashes, but without something innovative to give reason then doing the same old shit will just produce the same old results. Look at Blackberry ... they bought QNX, then used it as the OS on their new phones. That's innovative. Dell? They're still stuck using Chinese manufacteres to produce cut-rate POS electronics. What's change? Very little. But, if they go private, they may totally change all that. If they stay public, it may change, too. But, so far, I haven't heard anything that says otherwise, so I don't feel Dell is a good prospect to follow up on.

Given that Michael Dell's proposal basically screwed everyone else to enable him to do what he wanted (and noting that he has already screwed Dell employees with a share buy-back at a discount price), I don't quite understand why people are so concerned about the two new "plans". They're not Michael Dell buying back the company he founded, but nor are they screwing current shareholders.

For all those people saying "you can't trust these corporate raiders", are you saying Mr Dell is someone you trust instead? I certainly don't see any reason to, when he isn't prepared to pay shareholders what their shares are worth.

Because it's Michael Dell vs Icahn and a group whose prime objective is bleeding companies to death. Shareholder interests are not the interests of the business in a vacuum. Shareholders only give a shit about making money, which is not mutually exclusive with running a productive and successful business but neither are they related.